Wednesday, May 14, 2014

Sandwichman on Tomasky on Summers on Piketty

Sandwichman received a promotion from Michael Tomasky at DEMOCRACY: A Journal of Ideas,

Dear Friend,

Thomas Piketty's Capital in the Twenty-First Century has commandeered our intellectual conversation in a way no other book has in recent years. You're probably thinking everyone has weighed in on it. Wrong.

Today, we're posting a sneak preview of our Summer issue -- our review of Piketty, by Lawrence H. Summers. The former Treasury secretary, one of our most distinguished economists, offers a comprehensive take on Piketty's arguments. While he has "serious reservations" about Piketty's theories as a guide to understanding inequality, he believes that his study of the phenomenon amounts to a "Nobel Prize-worthy contribution."

I'm not sure how "comprehensive" Lawrence Summers's take on Piketty's arguments is. Inequality has "microfoundations" to use the "dry technocratic prose of most contemporary academic economists." And those microfoundations have been both concealed by the technocratic prose and reinforced by the resulting policy advice of academic economists, prominently including Dr. Summers.

Nearly a century ago, Thorstein Veblen offered insights into one important mechanism underlying the concentration of wealth that he termed "industrial sabotage" or the "conscientious withdrawal of efficiency" by business. The basic idea is that the pursuit of maximum pecuniary gain is not the same thing as maximizing output of product. Veblen's intuition is compatible with the neoclassical analysis of imperfect competition, but, as Warren Samuels noted twenty years ago, the dry technocratic academic economists who developed theories about efficiency wages and equilibrium unemployment didn't seem to care that the "shirking" they contemplated was entirely one-sided. Lawrence Summers was among those self-styled "New Keynesians."

More EconoSpeak may be required. Perhaps a response to this might be in order: Wisdom from Don Boudreaux:

"Piketty’s main thesis - that capital in free markets (absent calamities such as war) automatically grows at an average annual rate of at least 4 percent, so that those individuals with more wealth than others today will be those individuals with even more wealth than others tomorrow - is difficult to square with reality

Consider, for example, that 21 of the still-living 100 richest Americans of only five years ago are no longer in that group today.* That’s a greater than 20 percent turnover in a mere half-decade – and this turnover isn’t likely explained by the financial crisis. As reported by Larry Summers (who is no libertarian): “When Forbes compared its list of the wealthiest Aericans in 1982 and 2012, it found that less than one tenth of the 1982 list was still on the list in 2012, despite the fact that a significant majority of members of the 1982 list would have qualified for the 2012 list if they had accumulated wealth at a real rate of even 4 percent a year.”**

http://cafehayek.com/2014/05/down-the-lane-with-piketty.htmlReal-world market economies are far more dynamic and churning than Professor Piketty and his fans realize."

More EconoSpeak may be required. Perhaps a response to this might be in order: Wisdom from Don Boudreaux:

"Piketty’s main thesis - that capital in free markets (absent calamities such as war) automatically grows at an average annual rate of at least 4 percent, so that those individuals with more wealth than others today will be those individuals with even more wealth than others tomorrow - is difficult to square with reality

Consider, for example, that 21 of the still-living 100 richest Americans of only five years ago are no longer in that group today.* That’s a greater than 20 percent turnover in a mere half-decade – and this turnover isn’t likely explained by the financial crisis. As reported by Larry Summers (who is no libertarian): “When Forbes compared its list of the wealthiest Aericans in 1982 and 2012, it found that less than one tenth of the 1982 list was still on the list in 2012, despite the fact that a significant majority of members of the 1982 list would have qualified for the 2012 list if they had accumulated wealth at a real rate of even 4 percent a year.”**

http://cafehayek.com/2014/05/down-the-lane-with-piketty.htmlReal-world market economies are far more dynamic and churning than Professor Piketty and his fans realize."